Claims for input tax credits not substantiated - Advent 7 Pty Ltd

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The Administrative Appeals Tribunal has affirmed the Commissioner’s decision to disallow input tax credits claimed by a taxpayer, on the basis that there was little if any evidence to substantiate the acquisitions said to give rise to the input tax credits. The Tribunal also affirmed the penalties imposed by the Commissioner for recklessness as to the operation of tax laws, in making business activity statements to the ATO.

The taxpayer was one of a group of companies. At the time of registering for GST and up to 2009 the taxpayer’s main business activity was computer system design. After 2009, the taxpayer asserted it changed its business model and began marketing licensed computer software, in particular power management software products.

For the quarterly tax periods between 1 April 2008 and 30 June 2011, the taxpayer lodged BASs in which it claimed more than $400,000 in input tax credits, said to be for acquisitions of services from a related company and from another company controlled by a person who was an employee of the taxpayer. All of these claimed credits were supported by tax invoices issued to the taxpayer. However, the taxpayer was unable to produce evidence detailing the kinds of services said to have been supplied to the taxpayer, and it remained a matter of disagreement as to whether any of the tax invoices were actually paid.

On the evidence, and having regard to the onus of proof borne by the taxpayer, the Tribunal was not satisfied that services were provided to the taxpayer such as to enable the taxpayer to claim the GST ITCs in respect of the relevant periods.

The Tribunal affirmed the imposition of penalties calculated on the basis of recklessness. The taxpayer was grossly indifferent as to whether what was stated in the BASs was true or not, and failed to take reasonable care to comply with the applicable taxation laws. Further, there was no basis for remission of the penalty in circumstances where the tax shortfall was caused by recklessness as to the operation of a taxation law.